You've probably heard that investing money is a good way to get rich. After all, if you open a brokerage account, buy stocks, and earn returns on them, you'll end up with more money -- and sometimes a lot more money -- than you put in.
And indeed, it absolutely is the case that investing is one of the best ways to grow your net worth. It can be a whole lot smarter than just sticking all of your extra cash into a savings account, where your returns are limited. But the big question is, what happens if your investments don't perform well? Should you worry if you're losing money instead of making it?
Here's what you need to know if you're coping with a portfolio balance that's smaller than you'd like it to be because of some poorly performing assets.
Even good investments can sometimes lose money
The harsh reality every investor needs to face is that sometimes they can have a great investment and do everything right, and still lose money -- especially in the short term. This is because factors beyond their control can impact the performance of even the best investment.
For example, take a look at the chart below showing the performance of the S&P 500, which is a financial index of 500 of the largest U.S. companies. It's objectively one of the safest investments out there, as it's consistently produced 10% average annual returns over the long term and it basically involves betting on the American economy. You can invest in it by buying shares of an S&P 500 ETF (exchange-traded fund).
But look how it does in the short term. In some years, investors may have suffered close to a 20% loss.
| Year | Annual Percentage Change |
|---|
| 2023 | 13.98% |
| 2022 | -19.44% |
| 2021 | 26.89% |
| 2020 | 16.26% |
| 2019 | 28.88% |
| 2018 | -6.24% |
| 2017 | 19.42% |
| 2016 | 9.54% |
| 2015 | -0.73% |
| 2014 | 11.39% |
| 2013 | 29.60% |
Data source: Macrotrends.net
If you had money in this investment during a bad year, this doesn't mean you made a bad investment; it means that you had bad luck on timing. But as long as you held onto the asset, you'd almost certainly make back all you lost and more over time.
Consider how confident you are in your investment choice
While it's natural to feel worried if you see your investment account balance falling, you absolutely should not be concerned as long as:
- You made an informed investment choice and bought an asset with a solid performance record or with solid future potential, based on extensive research into the asset.
- You have a long investing timeline (around five or more years until you'll need the money), so you have time to wait for a market recovery.
- Nothing fundamental has changed about your investment that would call its future performance into serious question (such as the company's leader and visionary dying if you're invested in an individual company).
If your investment is still a good one that's performing badly because of natural market cycles or economic conditions unrelated to its fundamental traits, then you shouldn't be worried.
You should stay the course, wait out the downturn, and feel confident that your investment will make money over time. This is the very reason why long-term investors tend to do better with investing in the end.
FAQs
Even good investments can sometimes lose money
This is because factors beyond their control can impact the performance of even the best investment.
What to do when your investments are losing money? ›
"If you want to stay invested, sell at a loss and use the proceeds to buy into a similar, but not substantially identical, fund," Wybar says. "This way you can recoup the loss and participate in upside returns when the market goes back up."
Is it normal for investments to go down? ›
Historically, markets tend to rise over time. There may be short-term fluctuations – even some decrease in value along the way. But if you have an easy-access emergency fund to cover any unexpected costs, you'll be less likely to have to sell your investments during a downturn.
Do 90% of investors lose money? ›
Only the top 5 per cent profit makers account for 75 per cent of profits. Saad Bhakshi, an aspiring pilot, is addicted to stock market investing. He mostly dabbles in stocks and invests in IPOs.
Do I lose all my money if the stock market crashes? ›
Again, you technically don't lose any money in the stock market unless you sell your investments. If you simply hold your stocks until the market rebounds, your stocks should regain their value. The key is to ensure you're investing in strong stocks that have the ability to weather market turbulence.
Can I lose all my investments? ›
Technically, yes. You can lose all your money in stocks or any other investment that has some degree of risk. However, this is rare.
Should I pull my money out of investments? ›
Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss. Cash doesn't grow in value; in fact, inflation erodes its purchasing power over time. Cashing out after the market tanks means that you bought high and are selling low—the world's worst investment strategy.
At what age should I get out of stocks? ›
The 100-minus-your-age long-term savings rule is designed to guard against investment risk in retirement. If you're 60, you should only have 40% of your retirement portfolio in stocks, with the rest in bonds, money market accounts and cash.
Should I pull out of the stock market? ›
After all, nobody likes losing money; that goes against the whole purpose of investing. However, pulling your money out of the stock market during down periods can often do more harm than good in the long term.
Should I worry if my stock goes down? ›
It's important to remember that the market is cyclical and declines are inevitable. But a downturn is temporary. It's wiser to think long-term instead of panic selling when stock prices are at their lows.
Historically speaking, investors who hold on to their investments through recessions see their portfolios completely recover, and individuals who don't invest in the market at all lose out.
Why do all my investments fail? ›
The key to investing is avoiding making decisions based on bad information and emotions including fear, greed, and the range of others. Most investors know it's unwise to have knee-jerk reactions to market fluctuations, but many find it difficult to avoid that very human tendency.
Do you owe money if a stock goes negative? ›
No. A stock price can't go negative, or, that is, fall below zero. So an investor does not owe anyone money. They will, however, lose whatever money they invested in the stock if the stock falls to zero.
Can you ever lose more money than you invested? ›
You can lose more than you invested.
Just as profits can be magnified, so too can losses. If you purchase stock on margin and it loses value, you still have to repay the borrowed money plus interest.
How much does the average person lose in the stock market? ›
There is no easy answer when it comes to how much money the average investor loses in the stock market. However, some experts estimate that it can be anywhere from 10 to 50 percent.
Does the average person lose money on stocks? ›
How Many People Lose Money in the Stock Market? About 90% of investors lose money trading stocks.
Why are my investments dropping in value? ›
Drops in account value reflect dwindling investor interest and a change in investor perception of the stock. That's because stock prices are determined by supply and demand driven by investor perception of value and viability. As long as you don't sell your shares, you have a chance to regain lost value.
Can we lose all of our money in some investments? ›
Yes, it's possible to lose all your money in the stock market, and many traders have blown up multiple accounts before they became profitable traders. If the asset goes to zero (or in the case of crude oil last year, it went negative), then it will likely be worthless.
